Macquarie Group Limited — AGM Information 2013

Jun 19, 2013

Notice of 2013 Annual General Meeting

Macquarie Group Limited

Grand Hyatt Melbourne Savoy Ballroom 123 Collins Street Melbourne, Victoria No.1 Martin Place Sydney NSW 2000
GPO Box 4294 Sydney NSW 1164 Telephone (61 2) 8232 3333 Facsimile (61.2) 8232 4330 www.macquarie.com.au Internet

7 June 2013

Dear Shareholder

Please find enclosed notice of the 2013 Annual General Meeting of Macquarie Group Limited (Macquarie) which will be held at the Grand Hyatt Melbourne, Savoy Ballroom, 123 Collins Street, Melbourne, Victoria on Thursday, 25 July 2013. The meeting is scheduled to commence at 10:30 am and will also be webcast live on Macquarie's website at www.macquarie.com.au

The Managing Director and Chief Executive Officer, Nicholas Moore, and I will comment briefly on the performance of the Macquarie Group during the year to 31 March 2013 at the meeting. You are also referred to the comments in Macquarie's 2013 Annual Review and 2013 Annual Financial Report, which are available on Macquarie's website and together comprise the 2013 Annual Report, for further information.

If you are unable to attend the meeting, we invite you to appoint a proxy to attend and vote on your behalf, either online using the share registry's website at www.investoryote.com.au or using the enclosed proxy form.

Shareholders are invited to join the Board for light refreshments at the conclusion of the meeting.

If you plan to attend the meeting, please bring the enclosed proxy form to facilitate your registration which will commence at 9:30 am. I look forward to seeing you then.

Yours faithfully

Contentens

H Kevin McCann AM Chairman

The 2013 Annual General Meeting of Macquarie Group Limited (ACN 122 169 279) (Macquarie, the Company) will be held at the Grand Hyatt Melbourne, Savoy Ballroom, 123 Collins Street, Melbourne, Victoria on Thursday, 25 July 2013, at 10:30 am. Registration will commence at 9:30 am.

Ordinary Business

1 Financial Statements

To consider and receive the Financial Report, the Directors' Report and the Auditor's Report of Macquarie for the financial year ended 31 March 2013.

2 Re-election of Voting Director Retiring by Rotation

To consider and, if thought fit, pass the following as an ordinary resolution:

That Mr MJ Hawker be re-elected as a Voting Director of Macquarie.

3 Election of Mr MJ Coleman as a Voting Director

To consider and, if thought fit, pass the following as an ordinary resolution:

That Mr MJ Coleman, having been appointed as a Voting Director since the last general meeting, be elected as a Voting Director of Macquarie.

4 Remuneration Report

To consider and, if thought fit, pass the following as an ordinary resolution:

To adopt the Remuneration Report of Macquarie for the year ended 31 March 2013.

Special Business

5 Approval of termination benefits

To consider and, if thought fit, pass the following as an ordinary resolution:

That approval be given for all purposes (including for the purposes of sections 200B and 200E of the Corporations Act 2001) for the giving of all benefits to current or future key management personnel of the Company or persons who hold a managerial or executive office in the Company or a related body corporate, in connection with the person ceasing to hold an office or position of employment in the Company or a related body corporate, as set out in the Explanatory Notes to the Notice of Meeting convening this meeting.

6 Approval of Executive Voting Director's participation in the Macquarie Group Employee Retained Equity Plan (MEREP)

To consider and, if thought fit, pass the following as an ordinary resolution:

That the following be approved for all purposes:

• a) participation in the Macquarie Group Employee Retained Equity Plan (MEREP) by Mr NW Moore, Managing Director and Chief Executive Officer; and
• b) acquisition by Mr NW Moore of Restricted Share Units and Performance Share Units and the acquisition of shares in the Company in respect of those Restricted Share Units and Performance Share Units,

all in accordance with the terms of the MEREP and on the basis described in the Explanatory Notes to the Notice of Meeting convening this meeting.

7 Approval of the issue of Macquarie Group Capital Notes

To consider and, if thought fit, pass the following as an ordinary resolution:

That the issue of up to 6,000,000 Macquarie Group Capital Notes by the Company, on the terms and conditions as summarised in the Explanatory Notes to the Notice of Meeting convening this meeting and set out in the replacement prospectus issued by the Company and dated 22 May 2013, is approved for all purposes (including ASX Listing Rule 7.1).

Voting Exclusion Statement

Item 4 – Remuneration Report

A vote on Item 4 must not be cast (in any capacity) by, or on behalf of:

• a) a member or a former member of the key management personnel (KMP) whose remuneration details are disclosed in the 2013 Remuneration Report; and
• b) a closely related party of such a KMP,

unless the vote is cast by a person as proxy for a person entitled to vote in accordance with a direction on the proxy form. A closely related party includes close family members and companies the KMP controls.

Item 5 – Approval of termination benefits

A vote on Item 5 must not be cast (in any capacity) by or on behalf of any person who may be entitled to receive a benefit in connection with that person's retirement from office, or position of employment, the subject of Item 5 (Relevant Executive), or an associate of that Relevant Executive. However, a person is entitled to cast a vote if:

• a) it is cast by a person as a proxy appointed by writing that specifies how the proxy is to vote on the resolution; and
• b) it is not cast on behalf of a Relevant Executive or an associate of a Relevant Executive.

In any event Macquarie has determined that it will disregard any such votes by a staff member in determining whether Item 5 is passed.

In addition, a vote must not be cast on Item 5 by a member of the KMP of Macquarie, or a closely related party of a KMP, acting as proxy, if their appointment does not specify the way the proxy is to vote on Item 5.

Item 6 – Approval of Executive Voting Director's participation in the Macquarie Group Employee Retained Equity Plan (MEREP)

Macquarie will disregard any votes cast on Item 6 by the Managing Director and any associate of the Managing Director.

However, Macquarie need not disregard a vote on Item 6 if:

• a) it is cast by the Managing Director or any associate of the Managing Director as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form; or
• b) it is cast by the Managing Director who is chairing the meeting, as proxy for a person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

In addition, a vote must not be cast on Item 6 by a member of the KMP of Macquarie, or a closely related party of a KMP, acting as proxy, if their appointment does not specify the way the proxy is to vote on Item 6.

Item 7 – Approval of the issue of Macquarie Group Capital Notes

Macquarie will disregard any votes cast on Item 7 by any person who participated in the issue of Macquarie Group Capital Notes (MCN) and any associate of a person who participated in the issue of MCN (Excluded Person). However, Macquarie need not disregard a vote if:

• a) it is cast by a person or any associate of a person as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form; or
• b) it is cast by a person who is chairing the meeting, as proxy for a person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

Proxy Voting by Chairman

The Chairman of the Meeting will vote undirected proxies in favour of Items 2, 3, 4, 6 and 7. As also noted on the proxy form for the Meeting, where the Chairman of the Meeting is appointed as proxy and none of the 'For', 'Against' or 'Abstain' boxes is marked for Item 5, the appointing shareholder will be deemed to direct the Chairman to vote in favour of Item 5. The voting exclusions on KMP in Items 4 and 6 do not apply to the Chairman of the Meeting acting as proxy if their appointment expressly authorises the Chairman of the Meeting to exercise the proxy even if that item is connected directly or indirectly with the remuneration of a KMP of Macquarie.

ASX Waivers

ASX has granted a waiver allowing Macquarie to limit the application of Listing Rule 14.11 such that an unrelated nominee (Nominee) who may hold shares for underlying beneficial holders (each a Beneficiary) may vote on Item 7, subject to the following conditions:

• a) the Beneficiary provides confirmation to the Nominee that they have not participated in the issue of MCN nor are they a person who might obtain a benefit, except a benefit solely in the capacity of a holder of ordinary securities, if the resolution is passed, nor an associate of those persons;
• b) the Beneficiary directs the Nominee to vote for or against the resolution; and
• c) the Nominee does not exercise discretion in casting a vote on behalf of the Beneficiary.

By order of the Board

Dennis Leong Company Secretary Sydney, 7 June 2013

Notice of Meeting continued

Notes

$\mathbf{1}$ Proxies

If you cannot attend, you may appoint a proxy to attend and vote for you. If you are entitled to cast two or more votes, you may nominate two persons to vote on your behalf at the meeting. If two proxies are appointed, each proxy may be appointed to represent a specified number or proportion of your votes. Fractions of votes will be disregarded. If no such number or proportion is specified, each proxy may exercise half your votes. For shareholders receiving the Notice of Meeting by post, a proxy form and a reply paid envelope have been included with this Notice of Meeting. Proxy voting instructions are provided on the proxy form.

A proxy need not be a shareholder. Votes may be cast 'For' or 'Against' or you may 'Abstain' from voting on a resolution. If you wish to direct a proxy how to vote on any resolution, place a mark (e.g. a cross) in the appropriate box on the proxy form and your votes may only be exercised in that manner. You may split your voting direction by inserting the number of shares or percentage of shares that you wish to vote in the appropriate box. If you place a mark in the 'Abstain' box, your votes will not be counted in computing the required majority on a poll.

$\overline{2}$ Online Proxy Facility

You may also submit your proxy appointment online at www.investorvote.com.au

To use this online proxy facility, you will need to enter your Shareholder Reference Number (SRN) or Holder Identification Number (HIN), postcode and Control Number, as shown on your proxy form. You will be taken to have signed the proxy form if you lodge it in accordance with the instructions on the website. If you wish to use this facility, you must submit your proxy appointment through the facility by no later than 10:30 am (Melbourne time) on Tuesday, 23 July 2013. A proxy cannot be appointed online if they are appointed under a power of attorney or similar authority. The online proxy facility may not be suitable for some shareholders who wish to split their votes on an item of business or appoint two proxies with different voting directions. Please read the instructions for the online proxy facility carefully before you submit your proxy appointment using this facility. If you are a custodian and an Intermediary Online subscriber, you can log on to www.intermediaryonline.com

Proxy Delivery 3

Proxies given by post, fax or delivery must be received by Macquarie's share registry, Computershare Investor Services Pty Limited, at GPO Box 242, Melbourne, VIC, 3001 (facsimile number within Australia 1800 783 447 or from outside Australia +61 3 9473 2555) or at Level 4, 60 Carrington Street, Sydney, NSW, 2000 or at Macquarie's registered office in Sydney, by no later than 10:30 am (Melbourne time) on Tuesday, 23 July 2013. Any revocations of proxies (including online proxy appointments) must be received at one of these places before the commencement of the meeting, or at the registration desk at the Grand Hyatt Melbourne for the 2013 Annual General Meeting from 9:30 am on the day of the meeting and no later than the commencement of the meeting.

$\overline{4}$ Power of Attorney

If a shareholder has appointed an attorney to attend and vote at the meeting, or if the proxy is signed by an attorney, the power of attorney (or a certified copy of the power of attorney) must be received by Macquarie's share registry, Computershare Investor Services Pty Limited, at the addresses or facsimile number in Note 3 above, or at Macquarie's registered office in Sydney, by no later than 10:30 am (Melbourne time) on Tuesday, 23 July 2013, unless the power of attorney has been previously lodged with Macquarie's share registry for notation.

5 Corporate Representatives

If a corporate shareholder wishes to appoint a person to act as its representative at the meeting, that person should be provided with a letter or certificate authorising him or her as the company's representative (executed in accordance with the company's constitution) or with a copy of the resolution appointing the representative, certified by a secretary or director of the company. A form of appointment of corporate representative may be obtained from Macquarie's share registry.

6 Shareholders Eligible to Vote

Pursuant to regulation 7.11.37 of the Corporations Regulations 2001 (Cth), the holders of Macquarie's ordinary shares for the purposes of the meeting, will be those registered holders of Macquarie's ordinary shares at 7:00 pm (Melbourne time) on Tuesday, 23 July 2013.

7 Voting at the Meeting

In light of the large number of proxy votes which have been received from shareholders at previous meetings, it is intended that voting on each of the proposed resolutions at this meeting will be conducted by poll, rather than on a show of hands.

8 Definitions

The terms 'Voting Director' and 'Executive Voting Director' have the meanings given in Macquarie's Constitution.

The Voting Directors as at the date of the Notice of Meeting are: H Kevin McCann, Michael J Coleman, Diane J Grady, Michael J Hawker, Peter M Kirby, Catherine B Livingstone, Nicholas W Moore, John R Niland, Helen M Nugent and Peter H Warne. Mr Moore is the only Executive Voting Director.

Explanatory Notes on Items of Business

Item 1 - Financial Statements

As required by section 317 of the Corporations Act 2001 (Cth) (the Act), the Financial Report, Directors' Report and Auditor's Report of Macquarie Group Limited (Macquarie) and its subsidiaries (Macquarie Group) for the most recent financial year will be laid before the meeting.

Shareholders will be provided with the opportunity to ask questions about, or make comments on, the reports, management or about Macquarie Group generally but there will be no formal resolution put to the meeting.

The reports are available on Macquarie's website at www.macquarie.com.au/mgg-annualreport

Item 2 – Re-election of Voting Director Retiring by Rotation

Voting Directors, Mr Michael J Hawker and Ms Catherine B Livingstone, retire by rotation. Mr Hawker offers himself for re-election. A brief summary of Mr Hawker's qualifications and experience is provided below.

Ms Livingstone has decided not to stand for re-election and so will retire from the Board at the end of this annual general meeting. She has been an Independent Voting Director of Macquarie since August 2007 and Macquarie Bank since November 2003. Ms Livingstone has been a highly valuable contributor to the Board, especially in her capacity as a member of the Board Audit Committee which she has chaired since December 2005. The Board would like to express its sincere gratitude for her exceptional service as a Director.

Michael J Hawker AM, BSc (Sydney), FAICD, SF Fin

Member of the Board Audit Committee Member of the Board Risk Committee Member of the Board Governance and Compliance Committee

Mr Hawker joined the Boards of Macquarie and Macquarie Bank in March 2010 as an Independent Voting Director.

He was Chief Executive Officer and Managing Director of Insurance Australia Group from 2001 to 2008. From 1995 to 2001, Mr Hawker held a range of positions at Westpac, including Group Executive of Business and Consumer Banking and General Manager of Financial Markets. Prior to this, he held a number of positions at Citibank, including Deputy Managing Director for Australia and subsequently Executive Director, Head of Derivatives, Europe.

Currently, Mr Hawker is Chairman of the George Institute for Global Health, a member of the George Institute for Global Health (UK) and a Director of Aviva Plc Group, the largest insurance provider in the UK. He is also Director of Washington H Soul Pattinson and Company Limited, and Chairman of Australian Rugby Union and SANZAR (South African, New Zealand and Australian Rugby). Mr Hawker is a member of the International Rugby Board Council, the Executive Committee of the International Rugby Board, the Advisory Board to GEMS (a Hong Kong based private equity firm) and the board of trustees of the Giant Steps Foundation.

He was previously President of the Insurance Council of Australia, Chairman of the Australian Financial Markets Association, a board member of the Geneva Association and a member of the Financial Sector Advisory Council. Mr Hawker is the founder of the Australian Business in the Community Network.

The Board unanimously recommends that shareholders vote in favour of Mr Hawker's re-election.

Item 3 – Election of Mr MJ Coleman as a Voting Director

Mr Michael J Coleman, having been appointed by the Board as a Voting Director effective on 9 November 2012, offers himself for election as required by clause 9.2(b) of Macquarie's Constitution. A brief summary of Mr Coleman's qualifications and experience is provided below.

Michael J Coleman, MComm (UNSW), FCA, FCPA, FAICD

Member of the Board Audit Committee Member of the Board Risk Committee

Mr Coleman was a senior audit partner with KPMG for 30 years. He was KPMG's inaugural National Managing Partner Assurance and Advisory from 1998 to 2002, National Managing Partner for Risk and Regulation from 2002 to 2010 and Regional Leader for Asia Pacific Quality and Risk Management from 2002 to 2011. Currently, Mr Coleman is Deputy Chairman of the Financial Reporting Council, a member of the Audit Committee of the Reserve Bank of Australia, Chairman of the Reporting Committee of the Australian Institute of Company Directors and a member of the Advisory Board of Norton Rose Fulbright Australia. He is also Chairman of Planet Ark Environmental Foundation, Chair of the Advisory Board of the Centre for Accounting and Assurance Services Research at UNSW and a Director of Osteoporosis Australia. Previously Mr Coleman was Chairman of ING Management Limited.

If elected at the annual general meeting, Mr Coleman will succeed Ms Livingstone as Chairman of the Board Audit Committee.

The Board unanimously recommends that shareholders vote in favour of Mr Coleman's election.

Item 4 – Remuneration Report

As required by section 250R(2) of the Corporations Act 2001(Cth) (the Act), a resolution that Macquarie's Remuneration Report be adopted must be put to the vote.

Section 250R(3) of the Act provides that the vote on the resolution is advisory. However, if more than 25% of the votes are cast against two consecutive annual section 250R(2) resolutions, the Act requires a shareholder vote on whether to convene a special meeting at which all directors (other than a managing director) who were in office when the second 250R(2) resolution was passed must stand for re-election.

The Remuneration Report is contained within the Directors' Report in Macquarie's 2013 Annual Financial Report on pages 41 to 78. The Executive Summary is largely reproduced below.

Executive Summary

During the year, Macquarie's Board of Directors (the Board) and the Board Remuneration Committee (the BRC) have assessed whether Macquarie's remuneration approach continues to support its objective of generating superior returns for shareholders having due regard for risk. In undertaking this assessment, the Directors of the Board (Directors) have considered factors including the degree of alignment between staff and shareholders, the evolving regulatory landscape, market developments, feedback from shareholders as well as the employment environment. Directors have also been mindful of the subdued market conditions experienced by some businesses during the year and have closely examined the resilience of the remuneration system, given the performance of each business.

Directors have concluded that Macquarie's remuneration approach remains sound and is delivering results for shareholders while risk is being prudently managed, despite a challenging external environment.

They support this conclusion for the following reasons.

The objectives and framework remain appropriate.

The remuneration framework seeks to attract, motivate and retain high quality people, while aligning the interests of staff and shareholders. The framework, which works as an integrated whole rather than in isolation, is comprised of fixed remuneration, a profit share scheme, and for Macquarie's most senior executives, the Executive Committee, Performance Share Units (PSUs).

Fixed remuneration for senior staff remains relatively low compared to comparable roles in other organisations, although it is sufficient to avoid inappropriate risk-taking. Moreover, it is low as a proportion of overall remuneration. In 2013, fixed remuneration for Macquarie's 11 Executive Committee members comprised approximately 12 per cent of current year awarded remuneration. The balance remains at risk and is explicitly linked to performance.

Performance-based remuneration is aligned with shareholders' interests. The profit share pool is determined annually using the twin measures of net profit after tax (NPAT) and return on equity (ROE), measures which are known to be drivers of returns to shareholders. A portion of Macquarie's profit earned accrues to the profit share pool. Once the cost of equity capital is met, an additional portion of excess profit is accrued to the profit share pool. No ROE component of the profit share pool was created in FY2013. However, in line with policy, the Non-Executive Directors exercised their discretion to make an upward adjustment to the quantum of the profit share pool to recognise superior performers in those businesses that overall were impacted by subdued market conditions. In the past, such discretion has been exercised both down and up. Over time, the net aggregate impact on net profit of the exercise of these discretions has been nominal. Non-Executive Directors do not consider shareholders' long-term interests would be served by losing the services of superior contributors whose performance was not adequately recognised. Indeed, they consider that the "investment" made in these businesses is paying dividends.

Profit share is allocated to Macquarie's businesses and, in turn, to individuals, based predominantly on performance. Performance criteria vary depending on an individual's role including:

• contribution to NPAT and ROE
• risk management and compliance assessed through independent reports from the Chief Risk Officer (CRO), the Chief Financial Officer (CFO) and Human Resources (HR)
• people leadership

– upholding Macquarie's Goals and Values.

The Board also seeks to ensure that remuneration for staff whose primary role is risk and financial control, including the CRO and the CFO, preserves the independence of the function and maintains Macquarie's robust risk management framework.

Performance-based remuneration is delivered in ways that encourage a longer-term perspective and ensure alignment with shareholders' longer-term interests and staff retention. In turn, this encourages staff to maximise profit without exposing Macquarie to risk or behaviours that jeopardise long-term profitability or reputation. To achieve this outcome, a significant portion of performance-based remuneration is:

• retained and deferred over a long period (for example, 70 per cent of the Managing Director and Chief Executive Officer's (Managing Director and CEO's) profit share allocation is retained for up to seven years). After PSUs are taken into account, the effective deferral rate for the Managing Director and CEO is 77 per cent for this year
• delivered in equity
• subject to forfeiture in certain circumstances.

PSUs are allocated to Executive Committee members based on their performance, using criteria similar to those used for profit share. PSUs vest in equal tranches after three and four years and are exercisable subject to the achievement of two performance hurdles, with no retesting. 50 per cent of the PSUs will become exercisable based on Macquarie's ROE performance relative to ten global investment banks based on a sliding scale. 50 per cent will become exercisable above the 50th percentile and 100 per cent at the 75th percentile. The reference group has been amended going forward to exclude Australian commercial banks, instead focusing on organisations against whom Macquarie benchmarks its performance. The other 50 per cent of PSUs will become exercisable in future based on Macquarie's compound average annual growth (CAGR) in earnings per share (EPS) on a sliding scale. 50 per cent will become exercisable where EPS CAGR is 7.5 per cent and 100 per cent will become exercisable where it is 12 per cent or higher. The EPS CAGR hurdle range has been amended in future from the previous range of 9 –13 per cent to reflect changes in market conditions.

Other conditions apply that seek to align staff and shareholder interests, while prudently managing risk. All Executive Directors are subject to a minimum shareholding requirement which can be satisfied through the delivery of equity under the current remuneration arrangements. This aligns shareholder and staff interests and provides the strongest incentive to staff to strive continuously to maximise long-term profitability and shareholder returns.

Macquarie prohibits staff from hedging any of the following types of securities:

• shares held to satisfy the minimum shareholding requirement
• deferred and unvested awards to be delivered under the equity plan, the Macquarie Group Employee Retained Equity Plan (MEREP), including PSUs
• unvested options (under a previous scheme).

Staff can only trade Macquarie ordinary shares and other securities during designated trading windows.

Performance metrics are creditable including against peers.

In challenging circumstances, Macquarie has delivered improved results for shareholders while appropriately managing remuneration for staff. This can be demonstrated in the following ways.

The table below shows that over the past year, NPAT has increased by 17 per cent, basic EPS by 20 per cent and dividends by 43 per cent, while total staff compensation expense has decreased by 8 per cent. Macquarie's NPAT growth rate over the past year has been faster than all but one of its global peers. At the same time, the compensation expense to income ratio has declined from 47.9 per cent to 45.9 per cent, placing it in the lower range of peers. Macquarie recorded a 7.8 per cent annual ROE, which is recognised as needing improvement. Nonetheless, only four of ten peers generated a higher ROE. In relation to Total Shareholder Return (TSR), Macquarie has outperformed all its global peers over the past year, generating a TSR for shareholders of 34.4 per cent.

		2013	2012	Increase/ (Decrease)%
Performance measures
NPAT	\$Am	851	730	17
Basic EPS	Cents per share	251.2	210.1	20
Dividends	Cents per share	200.0	140.0	43
Annual TSR(1)	Per cent	34.4	(16.0)
Executive remuneration measures
Total Compensation Expense	\$Am	3,072	3,335	(8)
Compensation Expense to Income ratio	Per cent	45.9	47.9
Present Pay – CEO(2)	\$Am	3.08	2.85	8
Future Pay – CEO(3)	\$Am	7.51	6.67	13
Statutory Remuneration – CEO	\$Am	8.8	7.8	13
Statutory Remuneration – Comparable KMP(4)	\$Am	48.6	43.8	11

(1) TSR represents the accumulated share price return for the period ending 31 March 2013 when all cash dividends are reinvested at the ex-dividend date.

(2) Present pay is defined as the non-deferred element of remuneration awarded in respect of the financial year, recognising that some portion of present pay may in fact be paid in the subsequent financial year. This comprises current year fixed remuneration (including superannuation); and the non-deferred component of the current year profit share allocation (30 per cent for the CEO).

(3) Future pay is defined as remuneration awarded in respect of the financial year, which is deferred for payment in future years. For the CEO this represents the deferred unvested component of the current year profit share allocation (70 per cent) which is allocated into a combination of Macquarie equity and Macquarie-fund equity (see sections 1.3.1 – 1.3.3 of the Remuneration Report); and PSUs allocated in respect of the current year. PSUs vest after years three and four and are exercisable subject to the achievement of performance hurdles (see section 1.3.6 of the Remuneration Report).

(4) Comparable KMP are Executive KMP who were members of the Executive Committee for the full year in both FY2013 and FY2012.

Strong remuneration governance has been exercised.

The Board and the BRC remain committed to strong remuneration governance structures and processes. Conflicts of interest are managed proactively and assiduously. The BRC makes recommendations to the Non-Executive Directors on key decisions.

An independent remuneration review has also been obtained from an independent consultant, Pay Governance, to provide an opinion on the appropriateness of Macquarie's remuneration arrangements. Pay Governance has provided its report free from management influence and has confirmed that Macquarie's remuneration approach remains appropriate.

Non-Executive Director fees take into account market rates for relevant Australian financial organisations and reflect the time commitment and responsibilities involved within the shareholder approved aggregate limit.

In summary, the overall approach to remuneration supports the overarching objective of delivering superior value for shareholders over the long-term while prudently managing risk.

Noting that each Voting Director has a personal interest in their own remuneration from Macquarie, as described in the Remuneration Report, the Board unanimously recommends that shareholders vote in favour of adopting the Remuneration Report.

Item 5 – Approval of termination benefits

Executive Summary

On 17 December 2009, Macquarie shareholders approved Macquarie giving termination benefits to departing staff consistent with Macquarie's remuneration framework and termination benefits arrangements (2009 Approval).

While Macquarie's remuneration framework has remained largely unchanged since the 2009 Approval, good corporate governance practice suggests that the 2009 Approval be periodically refreshed.

This approval is only for the purposes of approving termination benefits. It does not in and of itself result in:

• approving any increase in the remuneration of any employee or officer outside Macquarie's remuneration framework as described in the Remuneration Report
• approving the provision of any new benefits to any specific leaving employee or officer
• approving any variation to the existing discretions of the Board or its delegate under the remuneration arrangements described in the Remuneration Report, or
• sanctioning any change to the underlying employment arrangements or entitlements for any individual employee or officer.

By passing Item 5, shareholders will provide Macquarie with the ability to ensure its ongoing compliance with section 200B of the Act and to meet expectations in relation to good corporate governance. For this reason, the Board considers it is in the interests of Macquarie and its shareholders to refresh the 2009 Approval at this time.

1 Termination benefits approval: Section 200B Corporations Act 2001

1.1 Who this approval affects

The Act restricts companies from giving certain termination benefits to staff who hold a "managerial or executive office" (as defined in section 200AA(1) of the Act) in Macquarie. This includes a person:

• who is a director of any Macquarie Group entity, or
• whose remuneration details are included in Macquarie's Remuneration Report,

and includes any person who held such an office in the three years before they ceased to be a director of, or ceased employment with, any Macquarie Group company (in these Explanatory Notes, any such person is referred to as a "Relevant Executive").

While the number will vary over time, Macquarie currently has over 1,000 related bodies corporate and approximately 500 Macquarie Group employees who meet the definition of Relevant Executives, and are therefore subject to the termination benefits provisions. Macquarie has a uniquely diversified global business. It differentiates itself by focusing on new opportunities, both in products and geographies. New corporate structures are typically established for these opportunities. Macquarie's approach is to appoint senior staff with knowledge of the specific product or business to the boards of these related bodies corporate. For that reason it has a large number of executives who are Relevant Executives under section 200B of the Act.

Shareholder approval of Macquarie's approach to termination benefits is essential for the continued operation of Macquarie's risk management approach, as well as Macquarie's remuneration policies which, through deferred equity-based retention, emphasise a longer-term perspective over a multi-year timeframe.

1.2 Shareholder approval

Under the termination benefits provision of the Act, termination benefits cannot be provided to Relevant Executives unless approved by shareholders, or an exception applies.

Termination benefits are defined to include a range of payments or benefits given in connection with a person ceasing to hold an office or position of employment, including termination payments and other benefits such as the acceleration or automatic vesting of share-based payments or entitlements at or due to retirement.

Certain benefits are exempt from the termination benefits restrictions and include:

• certain types of "deferred bonuses", including a bonus which is attributable to the release of a deferred bonus from a restriction due to death or incapacity
• genuine superannuation contributions paid by an employer or employee on or after 24 November 2009
• genuine accrued benefits, such as accrued untaken annual leave, payable under an Australian law or the law of another country, and
• reasonable payments made in accordance with a policy that applies to all employees as a result of a genuine redundancy having regard to a person's length of service.

There is an exception to the prohibition on the provision of certain termination benefits where the value of all termination benefits does not exceed one year's worth of the Relevant Executive's base salary (as calculated in accordance with the Act) (1 x Base Cap).

The provision of any other benefit requires shareholder approval. At Macquarie, these include:

• deferred remuneration in the form of:
• profit share
• Performance Share Units (PSUs)
• other awards
• other superannuation and forms of retirement savings
• other leave benefits
• payments in lieu of notice (in certain circumstances)
• redundancy payments (in certain jurisdictions).

In order to seek shareholder approval, shareholders must be provided with:

• details of the amount or value of the payment or benefit, or
• where the amount or value cannot be ascertained at the time of the disclosure:
• the manner in which the amount or value of the benefit is to be calculated, and
• any matter, event or circumstance that will, or is likely to, affect the calculation of the amount or value.

In Macquarie's case, the amount of any payment or value of any other benefit that may be given to a Relevant Executive in connection with the termination of his or her employment or removal from office depends on a number of factors, not all of which are within Macquarie's control. It is not possible to determine in advance the monetary value of the potential benefits that may be received by any particular executive at some point in the future. Section 2 of these Explanatory Notes for Item 5, and the table contained in that section, set out the manner in which the amount or value will be calculated, and the matters, events and circumstances that will affect the amount or value of a termination benefit paid to a Relevant Executive when they leave Macquarie.

Shareholder approval is sought under Item 5 to allow the provision of all benefits under Macquarie's remuneration framework which may be defined as termination benefits for the purposes of the termination benefits legislation and which are set out in these Explanatory Notes.

Accordingly, the amount and value of the benefits for which shareholder approval is sought is the maximum potential benefit that could be provided to a Relevant Executive in connection with the person ceasing to hold an office or position of employment with Macquarie.

2 Termination benefits provided to Relevant Executives

The overall objectives of Macquarie's remuneration system are to drive shareholder returns over the longterm, while prudently managing risk. This is achieved in a number of ways, including by emphasising a performance-based remuneration approach where a significant portion of performance-based remuneration is:

• retained and deferred over a long period
• delivered in equity
• subject to forfeiture, but can be released upon leaving Macquarie in the case of genuine retirement, death, disability, redundancy or other limited exceptional circumstances.

These arrangements could potentially result in Relevant Executives receiving termination benefits on termination of employment with Macquarie Group entities. The shareholder approval sought will cover the benefits set out in the following table, which may be provided in the circumstances described in the table. The following table also describes the manner in which the amount or value of the benefit is to be calculated and the matters, events and circumstances that will, or are likely to, affect that amount or value.

Key matters, events and circumstances affecting the calculation of the amount or value of the termination benefits provided to Relevant Executives

Benefit

1. Deferred remuneration – profit share

1.1 A Relevant Executive's profit share allocation, which is a function of the following factors in varying proportions:	1.1.1 The overall profit share pool	The overall profit share pool is determined annually by: allocation of a proportion of the Group's NPAT – – allocation of an additional proportion of profit once the cost of equity capital is met exercise of discretion by the Non-Executive Directors to adjust the – size of the pool up or down taking into account: shareholders' interests – the performance of each business and the divisions within – each business risk and compliance – the employment environment and market conditions – staff retention risk. –
	1.1.2 Allocation to businesses	Allocation to businesses and teams based on: their contribution to profits (not revenue) taking into account capital – usage, risk management, compliance and market dynamics. Allocation to risk and financial control groups and other support groups based on: the quality and integrity of control functions and the quality of – business support services – no direct link to profitability.
	1.1.3 Relevant Executive's performance	Allocation to the Relevant Executive based on: their individual performance. Performance criteria vary depending – on an individual's role including the following factors, in varying proportions, which can change from time to time: financial performance including contribution to NPAT and – ROE – risk management and compliance (assessed through independent reports from the CRO, the CFO and HR) business leadership – – people and organisational leadership, including upholding Macquarie's Goals and Values. For the Managing Director and CEO, refer to section 4.1 of Macquarie's Remuneration Report for further performance criteria considered.

Key matters, events and circumstances affecting the calculation of the amount or value of the termination benefits provided to Relevant Executives

Benefit
---------

1. Deferred remuneration – profit share (continued)

1.2 The amount of profit share retained	1.2.1 The per cent retained	Retention affects the value of deferred remuneration that a Relevant Executive may receive on termination.
for a Relevant Executive, which is a function of the following factors in varying proportions:		For Relevant Executives who are Executive Directors, this is generally within the range of 40 – 70% and for Relevant Executives who are not Executive Directors, this is generally within the range of 25 – 70% (above specific thresholds), in each case dependent on their role. However, retention can be higher in certain exceptional circumstances.
		The Board or the BRC has discretion to change the percentage of profit share allocations retained on an annual basis to meet changing market conditions as well as to comply with regulatory and corporate governance guidance, provided that the retention percentage is at least 30% for Executive Directors. Differing retention levels may also occur as the result of a business acquisition, where remuneration arrangements are entered into as part of a transition and/or integration process. Retention rates may vary from year to year for any Relevant Executive. For each year's allocation, once the retention rate has been determined it remains fixed for that allocation.
		In addition, the Board has discretion to change retention levels where local laws impact the application of Macquarie's retention arrangements. At all times these adjustments are to ensure that Relevant Executives are in a similar situation and not disadvantaged due to those restrictions.
		Macquarie's standard retention rates will continue to be disclosed each year in Macquarie's Remuneration Report.
	1.2.2 Time to vest and release	The length of vesting and the timing of release affects the value of deferred remuneration that a Relevant Executive may receive on termination.
		Retained profit share vests and is released over a period that reflects the scope and nature of a Relevant Executive's role and responsibilities. For Relevant Executives who are Executive Directors, vesting periods are typically within the range of 3-7 years, and for Relevant Executives who are not Executive Directors, vesting periods are typically within the range of 2-4 years. However, the vesting periods may be shorter or longer in response to local regulatory or legislative requirements. Differing vesting periods may also occur as the result of a business acquisition, where remuneration arrangements are entered into as part of a transition and/or integration process.
		The Board or the BRC has discretion to change the vesting and release period on an annual basis to meet changing market conditions as well as to comply with regulatory and corporate governance guidance. For each year's allocation, once the vesting period has been determined, it remains fixed for that allocation.
		The applicable standard vesting and release period will continue to be disclosed each year in Macquarie's Remuneration Report.

Key matters, events and circumstances affecting the calculation of the amount or value of the termination benefits provided to Relevant Executives

Benefit

1. Deferred remuneration – profit share (continued)

1.2 The amount of 1.2.3 Where profit share retained retained profit share is invested for a Relevant Executive, which is a function of the following factors in varying proportions: (continued)		The allocation of retained profit share is a function of the Relevant Executive's role, responsibilities and level, as well as historical arrangements including acquisitions. Retained profit share is invested, either directly or notionally, in Macquarie equity or Macquarie-managed funds or, in subsidiaries in the case of acquired businesses. Retained profit share may be invested in varying proportions in a combination of these forms.
		In limited circumstances, and only with the approval of the BRC, retained profit share may be allocated to other than Macquarie managed fund equity or the MEREP(1). An example might include investment in funds or products of a specific business group where there is a need to directly align the interests of employees with those of their specific types of clients.
		For Relevant Executives who are not Executive Directors, retained profit share is generally (but not exclusively) invested in the MEREP.
		The Board or the BRC has discretion to review the percentage allocated to Macquarie-managed fund equity and the MEREP on an annual basis to reflect a Relevant Executive's responsibilities and to strengthen shareholder alignment and risk management for Macquarie and the Macquarie-managed funds.
		The standard percentages allocated to the MEREP and Macquarie managed fund equity for Executive Directors will continue to be disclosed each year in Macquarie's Remuneration Report.
	1.2.4 The change in value of the invested profit share	The change in the value of the investment can be caused by: an increase or decrease in the value of the equity or underlying – equity returns on that equity including dividends and capital returns where – applicable.
	1.2.5 Number of years the Relevant Executive has participated in the profit share scheme	The number of years that the Relevant Executive has participated in the profit share scheme impacts the quantum of unvested profit share.

(1)The Macquarie Group Employee Retained Equity Plan.

Key matters, events and circumstances affecting the calculation of the amount or value of the termination benefits provided to Relevant Executives

1. Deferred remuneration – profit share (continued)

1.2 The amount of profit share retained for a Relevant Executive, which is a function of the following factors in varying proportions: (continued)	1.2.6 Application of Malus (if applicable)	Each year, the BRC identifies the group of executives, some of whom are Relevant Executives, who are subject to Malus. For such Relevant Executives, the Board or its delegate has discretion to reduce or eliminate unvested profit share amounts (in respect of profit share years ending 31 March 2012 and onwards) where it determines that their action or inaction has thereby caused Macquarie significant reputational harm, caused a significant unexpected financial loss or caused it to make a material financial restatement (Malus).
		Additional terms may apply to staff in jurisdictions outside Australia to ensure compliance with local regulations.
		The specific terms are periodically reviewed by the BRC and may be amended as considered appropriate. Macquarie's standard Malus terms will continue to be disclosed in the Remuneration Report each year.
1.3 Circumstances in which a termination benefit may be paid	1.3.1 Circumstances of leaving Macquarie	In the case of death or serious incapacitation, the Board or its delegate will typically accelerate the vesting of retained profit share and immediately release it to the Relevant Executive, or to the Relevant Executive's legal personal representative.
		In the case of genuine retirement, redundancy, disability, serious ill health or other limited exceptional circumstances (such as for business efficacy reasons), the Board or its delegate has discretion to accelerate the vesting of retained profit share, and in the case of Executive Directors, subject to the disqualifying events provisions set out below.
		In all cases where the discretion is exercised, the Board or its delegate may impose such other conditions as it considers appropriate.
		For other terminations, unvested retained profit share is forfeited.
		Disqualifying events provision (for Executive Directors) Where the Board or its delegate exercise discretion to accelerate the vesting of retained profit share, the Executive Director will not be entitled to receive any of their unvested retained profit share where the Board or its delegate determines that the Executive Director has during the period of employment with Macquarie or since leaving: (a) committed an act of dishonesty (including but not limited to misappropriation of funds and deliberate concealment of a transaction) (b) committed a significant and wilful breach of duty that causes material damage to Macquarie (c) joined a competitor of Macquarie Group (d) taken staff to a competitor or been instrumental in causing staff to go to a competitor, or (e) otherwise acted or failed to act in a way that thereby causes damage to Macquarie, including but not limited to situations where the action or inaction leads to a material financial restatement, a significant financial loss or any significant reputational harm to Macquarie or its businesses.

Key matters, events and circumstances affecting the calculation of the amount or value of the termination benefits provided to Relevant Executives

Benefit

1. Deferred remuneration – profit share (continued)

1.3 Circumstances 1.3.1 Circumstances in which a of leaving Macquarie termination benefit (continued) may be paid (continued)	These provisions are subject to periodic review by the Board. Any changes will be disclosed in the Remuneration Report each year. The release will occur over the period from six months to two years after the Executive Director leaves, subject to different disqualifying event provisions:
			First period	Second period	Third period
		Time post departure	6 months	6 months – 1 year	1 year – 2 years
	Unvested retained profit share released	From all but the last two years of employment	From the second year prior to the end of employment	From the year prior to the end of employment
	Subject to disqualifying events	(a), (b), (c), (d) and (e)	No disqualification during First Period and (a), (b), (d) and (e) in Second Period	No disqualification during First Period and Second Period and (a), (b) and (e) in Third Period
			Where a Relevant Executive has a tax liability on termination of employment in respect of any retained profit share, the Relevant Executive may receive retained profit share up to an amount equal to the Relevant Executive's tax liability at an earlier time than noted above.

Benefit

2. Deferred remuneration – Performance Share Units(2) (PSUs) (applicable only to Executive Committee members)

2.1 A Relevant 2.1.1 The overall Executive's PSU PSU pool allocation is a	The overall dollar value of the PSU pool which is based on the exercise of Non-Executive Directors' discretion taking into account the Group's overall performance and employment market factors.
function of the following factors in varying proportions:	2.1.2 The Relevant Executive's performance	The dollar value of PSUs awarded to members of the Executive Committee which is based on their individual performance as assessed by the Non-Executive Directors of the Board. Performance criteria vary depending on an individual's role including the following factors, in varying proportions, which can change from time to time: financial performance including contribution to NPAT and ROE – risk management and compliance (assessed through independent – reports from the CRO, the CFO and HR) business leadership – people and organisational leadership, including upholding – Macquarie's Goals and Values.

(2) Further information in regards to PSUs is set out in section 1.3.6 of the 2013 Remuneration Report.

Key matters, events and circumstances affecting the calculation of the amount or value of the termination benefits provided to Relevant Executives

Benefit

1. Deferred remuneration – Performance Share Units (PSUs) (applicable only to Executive Committee members) (continued)

2.1 A Relevant Executive's PSU allocation is a function of the following factors in varying proportions: (continued)	2.1.3 Number of PSUs awarded	The number of PSUs awarded which reflects the relevant assumptions adopted to determine the fair value of each PSU, and therefore the number of PSUs granted. The fair value is determined using a Monte Carlo option pricing framework, designed to take account of trading restrictions and the vesting performance hurdles and timeframes. Further detail is provided in Appendix 4 of Macquarie's Remuneration Report. These assumptions are subject to periodic review. Any changes will continue to be disclosed each year in Macquarie's Remuneration Report.
2.2 Exercisability of PSUs		The exercisability of PSUs, which as set out in Appendix A, are subject to two performance hurdles, each applying individually to 50 per cent of the total number of each tranche awarded. Under both performance hurdles, the objective is examined once only. If the condition is not met when examined, the PSUs due to vest will not be exercisable upon vesting, resulting in a nil benefit to Executive Committee members. The hurdles are periodically reviewed by the Board, including the
		reference group, and the Board has discretion to change the performance hurdles in line with regulatory and corporate governance guidance. PSU hurdles will continue to be disclosed in each year's Remuneration
		Report.
2.3 Time to vest		PSU grants made prior to 2012 vest in three equal tranches after two, three and four years. PSUs granted from 2012 vest in two equal tranches after three and four years.
		The Board or its delegate has discretion to change the vesting period on an annual basis to meet changing market conditions as well as to comply with regulatory and corporate governance guidance. For each year's allocation, once the vesting period has been determined it remains fixed for that allocation.
		The applicable vesting period will continue to be disclosed each year in Macquarie's Remuneration Report.
2.4 The change in the underlying value of shares		Share price appreciation or depreciation affects the value of the PSUs upon vesting.
2.5 Circumstances of leaving Macquarie		To ensure continued alignment with shareholders post termination, in cases of genuine retirement, PSUs continue to vest in accordance with the above vesting schedule and remain subject to the same performance hurdles. The Board or its delegate has the authority to accelerate the vesting of, or to forfeit PSUs, when an Executive Committee member leaves Macquarie.

Key matters, events and circumstances affecting the calculation of the amount or value of the termination benefits provided to Relevant Executives

Benefit

1. Other awards

Relevant Executives who are promoted to Associate Director, Division Director or Executive Director receive a fixed allocation of MEREP awards, based on seniority. Currently these awards range from 1,000 to 4,000 awards depending on level. The BRC has discretion to change These awards vest on a pro-rata basis over years two, three and four. In the case of genuine retirement, redundancy, death, disability, serious ill-health or other limited exceptional circumstances, the Board or its delegate has discretion to accelerate the vesting of some or all of these awards and immediately release to the Relevant Executive. In all cases where the discretion is exercised, the Board or its delegate
may impose such other conditions as it considers appropriate.
Relevant Executives who join Macquarie as Director level staff receive a fixed allocation of MEREP awards as set out above under 3.1. In addition, occasionally Macquarie Director level staff may receive an equity grant when they join Macquarie to compensate for the value of deferred remuneration from their previous employer which they have forfeited upon leaving Macquarie. Typically, these awards would be structured to mirror the terms of the deferred remuneration which has been forfeited, including the period over which the award or grant will vest and be released. The value of such awards will be subject to the same matters, events and circumstances as those described in section The Board or its delegate has discretion to accelerate these amounts in the same circumstances and in the same way as set out above under
When the MEREP was established, Executive Directors were given the choice to move some or all of their pre-2009 retained profit share to the MEREP (Transitioned Amounts). These amounts vest on a straight line basis up to 2016 for Executive Committee members and 2014 for other The Board or its delegate has discretion to accelerate such awards in the same circumstances and in the same way as set out above under
Executive Directors pre-2009 retained profit share that was not transitioned to the MEREP is grandfathered in the Pre-2009 DPS Plan. Retained profit share amounts begin to vest after five years of service as an Executive Director and fully vest after 10 years of service. Vested retained profit share is released (subject to the non-occurrence of a disqualifying event) on the earlier of the Executive Director's ceasing employment with the Macquarie Group and the end of the ten year period commencing on the date on which the retained profit share was The Board or its delegate has discretion to accelerate unvested amounts in the same circumstances and in the same way as set out above under 1.3.1, except when released on cessation of employment, the vested retained profit share is usually released six months after cessation date, to enable the Executive Committee or the Board to determine whether
any disqualifying events have occurred post-cessation.

Key matters, events and circumstances affecting the calculation of the amount or value of the termination benefits provided to Relevant Executives

Benefit

1. Other awards (continued)

3.5 Options	Options for staff were discontinued in 2009. Some options remain outstanding. Executive Director Options can only be exercised if the exercise conditions are met. Options vest in three tranches after two, three and four years. Each Option cannot be exercised before vesting and will generally lapse unexercised if the holder leaves Macquarie before the Option is exercised.
	The Board or its delegate has discretion to vary option terms including variations to lapse dates in the same circumstances as set out above under 3.1.

Benefit

4. Other superannuation and forms of retirement savings

4.1 The applicable minimum statutory contributions or established market practices, which may change over time	In Australia, Macquarie makes the compulsory superannuation contributions required by law (currently 9% - increasing to 9.25% on 1 July 2013 - subject to the maximum contribution base which is indexed annually) on behalf of Relevant Executives. Currently, Macquarie does not contribute more than the statutory amount as an employer superannuation contribution, although executives may choose to salary sacrifice additional employee contributions. Outside Australia,
4.2 The Relevant Executive's total remuneration over time 4.3 Any earnings and capital gain or loss, on contributions by Macquarie	Macquarie employs staff in a number of countries with statutory requirements for employers and/or employees to make contributions to superannuation or other forms of retirement savings. Macquarie complies with these obligations and may also facilitate employee contributions through salary sacrifice or other means. In other jurisdictions, there are established market practices for providing employer contributions to superannuation or other forms of retirement savings which may exceed the minimum statutory requirement or where there is no statutory requirement. Macquarie's approach is to follow reasonable market practices in these jurisdictions.
4.4 The Relevant Executive's years of service	The value of a Relevant Executive's benefits from such arrangements will be equal to the contributions made by Macquarie to the relevant superannuation fund or other arrangement over the period of employment and also earnings and capital growth or loss. The value of these benefits may also be a function of the terms of the particular scheme, years of service and salary upon termination of employment.

Key matters, events and circumstances affecting the calculation of the amount or value of the termination benefits provided to Relevant Executives

Benefit

5. Other leave benefits

5.1 The applicable statutory accruals or established market practices, which may change over time 5.2 The Relevant Executive's salary upon termination of employment 5.3 The Relevant Executive's length of service		In Australia, Macquarie accrues annual leave for Relevant Executives over time as required by law. Outside Australia, Macquarie employs staff in a number of countries where local statutory requirements also require accruals for annual, holiday or vacation leave and Macquarie complies with these obligations. In other jurisdictions, there are established market practices for such leave accruals which may exceed the minimum statutory requirement and Macquarie's approach is to follow reasonable market practices in these jurisdictions. Depending on the statutory requirements and market practice of each jurisdiction, any such accrued but untaken leave benefit may become payable on termination of employment. The value of a Relevant Executive's benefit from such arrangements will be equal to the level of accrued but untaken leave which is required to be paid out to the Relevant Executive on termination of employment pursuant to either legislation or market practice. The value of the benefit will also therefore be a function of the Relevant Executive's length of service and salary upon termination of employment.
Benefit
6. Payments in lieu of notice (in certain circumstances)
6.1 The Relevant Executive's remuneration at the time of termination, or in some cases, the period leading up to the time of termination		Relevant Executives have employment agreements which include notice periods. The majority of Relevant Executives have a contractual notice period of four weeks. Some Relevant Executives have notice periods that are aligned to local legislation or to country and regional markets and are other than four weeks or greater than the relevant legislative minimum. If the Relevant Executive serves their notice period, they will receive wages and accrued benefits which will be calculated up to that Relevant
6.2 The length of the		Executive's actual termination date, none of which will be a termination benefit.
notice period for which payment is being made 6.3 Whether Macquarie's operational requirements at the time require the Relevant Executive to work through part or all of their notice period	However, there are circumstances where Macquarie may determine that it is more commercially appropriate to terminate the employment of a Relevant Executive and make a payment in lieu of the remuneration that the Relevant Executive would have received for the balance of their relevant notice period, or is entitled to receive under their contractual notice provision. This discretion exists both under Macquarie's employment arrangements and under employment law generally and is common practice.
	If a payment is made in lieu of notice to a Relevant Executive, that payment is a benefit within the meaning of the Act. The amount of any such payments can only be determined once notice is given. The Board considers that having this flexibility is an important part of conducting its business.

Key matters, events and circumstances affecting the calculation of the amount or value of the termination benefits provided to Relevant Executives

Benefit

7. Redundancy terms (in certain jurisdictions)

7.1 The applicable minimum statutory or contractual	In most cases, redundancy payments to Relevant Executives are exempt from the termination benefit restrictions in the Act.
redundancy entitlements or established market practices, which may change over time	Macquarie's approach is to align its redundancy policies in each jurisdiction with market practice in that place or, where required, with local law. In most cases, redundancy payments are a pro-rata amount based on the number of years of service and current base pay. In other cases, the amount may be based on a set number of months' base remuneration in addition to a pro-rata amount. In some jurisdictions, Macquarie has full discretion as to the amount, if any, of redundancy
7.2 The Relevant Executive's fixed	payments whereas in other jurisdictions Macquarie's discretion is more limited.
remuneration over time	The relevant exemption applies to a reasonable payment made in accordance with Macquarie's redundancy policy as a result of a genuine
7.3 The number of years the Relevant Executive has worked with Macquarie	redundancy, having regard to the length of a person's service with Macquarie. The approval sought under Item 5 will operate where the redundancy payment is not covered by this exemption, for example, where the payment is not made under Macquarie's standard redundancy policy for the relevant jurisdiction.

$\mathbf{3}$ Other information

A summary of the key features of Macquarie's current remuneration framework is set out in the Explanatory Notes on Item 4 and described in more detail in the 2013 Remuneration Report. This includes specific information on the way Macquarie's remuneration framework operates, the amount of profit share retained, how retained profit share is invested and forfeiture and vesting rules. Macquarie's 2013 Annual Financial Report, which includes the Remuneration Report, is available online at www.macquarie.com.au

Further information in regards to items 3.3, 3.4 and 3.5 in the table in section 2 above, are set out in the Notice of Meeting for the 2009 Approval.

Shareholders should reasonably anticipate that aspects of Macquarie's remuneration arrangements, including Relevant Executives' deferred remuneration arrangements, will be amended from time to time. This is in line with market practice and changing regulatory and governance standards as well as legal requirements. These changes will be reported in Macquarie's future Remuneration Reports.

$\overline{4}$ Consequences of approval not being obtained

If the approval sought under Item 5 is not obtained, Macquarie will continue operating under the 2009 Approval. However, this could in future constrain Macquarie's ability to comply with, or adapt to, emerging, and sometimes conflicting, regulatory and legislative developments. This might create uncertainty for staff and impact Macquarie's ability to attract and retain high quality people.

5 Board Recommendation on Item 5

The Non-Executive Voting Directors of the Board unanimously recommend that shareholders approve Item 5 in the Notice of Meeting. Nicholas Moore being the Managing Director and CEO, has a material personal interest in the resolution and, therefore, has abstained from providing a recommendation.

Item 6 – Approval of Executive Voting Director's Participation in the Macquarie Group Employee Retained Equity Plan (MEREP)

The approval of shareholders is sought to permit Nicholas Moore, Macquarie's Managing Director and Chief Executive Officer, to participate this year, with other executives in the MEREP.

Background

This approval is being sought because ASX Listing Rule 10.14 provides that a listed company may only permit a director of the company to acquire newly issued shares or rights to shares under an employee incentive scheme where that director's participation has been approved by an ordinary resolution of shareholders.

The Managing Director is eligible to receive Restricted Share Units (RSUs) under the MEREP. The shares required for this grant will be acquired on-market by the trust established to hold shares for MEREP purposes. As no shares will be issued for these RSUs, shareholder approval is not required for the grant of RSUs to the Managing Director. However, consistent with Macquarie's commitment to good corporate governance it is providing shareholders with the opportunity to vote on the grant.

The Managing Director is also eligible to receive Performance Share Units (PSUs) that are exercisable subject to performance hurdles. Shareholder approval under ASX Listing Rule 10.14 is being sought so that PSUs are able to be issued to the Managing Director under the MEREP. Further information on PSUs and the performance hurdles can be found in Appendix A to these Explanatory Notes.

Restricted Share Units

Approval is sought to allocate \$4.48 million of the Managing Director's retained 2013 profit share under the MEREP, in the form of RSUs.

Twenty per cent of the RSUs for which approval is sought will vest each year between years three and seven. In all other respects, the RSUs will be subject to the same terms and conditions as RSUs awarded to other Executive Directors with retained profit share allocated under the MEREP. Macquarie's 2013 Remuneration Report includes a summary of these terms and conditions.

The number of RSUs that will be allocated to the Managing Director will be determined by dividing his retained profit share amount to be invested in Macquarie shares (\$4.48 million) by the average price at which Macquarie shares are acquired on-market during the Buying Period for the allocation of MEREP awards to other staff with retained profit share for the financial year ended 31 March 2013. For 2013, the Buying Period is expected to run from 13 May 2013 to 5 July 2013, except during the pricing period for the Macquarie Dividend Reinvestment Plan (23 May 2013 to 29 May 2013), but may be completed sooner or later. The average price is referred to as the Conversion Price. This is consistent with the methodology used for calculating the number of MEREP awards for other staff with retained profit share for the financial year ended 31 March 2013. The number of RSUs to be allocated to the Managing Director will not be known until the Conversion Price is calculated at the end of the Buying Period. Macquarie will announce to the market the Conversion Price and the number of RSUs to be allocated to the Managing Director, prior to the date of the AGM.

Performance Share Units

Approval is sought to allocate Mr Moore \$2.2 million worth of PSUs vesting in two equal tranches after three and four years from the deemed vesting commencement date (1 July 2013), giving an average vesting period of three and a half years. To ensure continued alignment with shareholders post termination, in cases of genuine retirement, PSUs continue to vest in accordance with the above vesting schedule and remain subject to the same performance hurdles. The Board or its delegate has the authority to accelerate the vesting of, or to forfeit PSUs, when the Managing Director leaves Macquarie. The Managing Director's PSUs will be structured as Deferred Share Units (DSUs) with the performance hurdles described in Appendix A to these Explanatory Notes. A DSU is a right to receive on exercise of the DSU either a share held in the MEREP Trust (Trust) or a newly issued share (as determined by Macquarie in its absolute discretion) for no cash payment, subject to the vesting and forfeiture provisions of the MEREP.

The number of PSUs that will be allocated to the Managing Director will be calculated by dividing \$2.2 million by the fair valuation of a PSU at the date of grant. The maximum value of PSUs that may be acquired by the Managing Director is \$2.2 million. The determination of the number of PSUs to be allocated will be deferred until after shareholder approval is received. The fair value per PSU is to be calculated at the date of grant and will be determined using a Monte-Carlo option pricing framework. The Monte-Carlo option pricing framework is a valuation technique that, based on input assumptions, generates thousands of possible outcomes and assigns a value to each.

The values are then averaged and discounted to the present to arrive at the value of a PSU. This valuation methodology is also designed to take account of trading period restrictions and the vesting performance hurdles and timeframes described in Appendix A to these Explanatory Notes. The following key assumptions will be adopted in estimating the value of the proposed PSUs: a risk free interest rate(1), volatility(2) and a forecast dividend yield. The market price of the Macquarie shares for the purpose of this calculation will be the closing market price preceding the date of grant, which is expected to be on or around 15 August 2013.

The table below provides an estimate of the number of PSUs to be granted at varying prices for Macquarie shares. The following assumptions were used in estimating these values: a risk free interest rate of 3.52 per cent per annum, volatility of 31.1 per cent and a forecast dividend yield of 4.99 per cent per annum (paid in two instalments each year).

Macquarie Share Price	Value of PSU Award	PSU Value (per unit)	PSUs to be granted
\$50	\$2,200,000	\$30.0124	73,303
\$45	\$2,200,000	\$27.0112	81,447
\$40	\$2,200,000	\$24.0099	91,628
\$35	\$2,200,000	\$21.0087	104,718

Further details regarding PSUs are set out in section 1.3.6 of the Remuneration Report.

Executive Voting Director's remuneration

Full details of the Managing Director's remuneration and Macquarie share and option holdings in respect of the 2013 financial year are shown in Notes 32 – 33 (Key Management Personnel disclosure and Employee equity participation) in the 2013 Annual Financial Report.

Maximum number of RSUs and PSUs

The maximum number of RSUs for which approval is sought will be calculated as described above and will be announced to the market before the AGM, together with the Conversion Price used in the calculation.

(2) Being the actual three year historical volatility of the Macquarie share price.

⁽¹⁾ Being the zero coupon yield curve derived from the inter-bank interest rate swap curve as per industry practice for a Monte-Carlo simulation.

The maximum value of PSUs that may be acquired by the Managing Director is \$2.2 million. The maximum number of PSUs that may be acquired by the Managing Director for which shareholder approval is sought will be calculated by dividing the PSU allocation amount by the fair value of a PSU on the date of grant.

Price payable on grant of Restricted Share Units

The effective aggregate price payable by the Managing Director for the RSUs for which shareholder approval is sought is approximately \$4.48 million, being the amount of Mr Moore's 2013 retained profit share to be allocated under the MEREP.

Price payable on grant of Performance Share Units

The Managing Director will not make any cash payment for the PSUs for which shareholder approval is sought. The PSUs are an incentive mechanism for future performance and can only be exercised subject to satisfaction of the performance hurdles described in Appendix A to these Explanatory Notes.

Participants under previous approvals

The Managing Director is the only person referred to in ASX Listing Rule 10.14 entitled to participate in the MEREP.

The Managing Director was granted 141,772 RSUs with a conversion price of \$26.97 per share and 120,667 PSUs for nil cash consideration following shareholder approval at the 2012 Macquarie Group Annual General Meeting.

Terms of any loan relating to the acquisition of shares

No loan is being provided to the Managing Director in relation to the acquisition of shares under the MEREP.

Date by which grants will be made

The proposed grant of RSUs and PSUs to the Managing Director is expected to be on or around 15 August 2013, subject to shareholder approval of Item 6 in the Notice of Meeting.

Consequences if approval not obtained

If shareholders do not approve the proposed issue of RSUs and PSUs to the Managing Director under Item 6, the proposed grant of RSUs and issue of PSUs to him will not proceed. This may impact Macquarie's ability to incentivise the Managing Director and align his interests with those of shareholders and with the remuneration arrangements of the other Executive Directors. The Board will need to consider alternative remuneration arrangements, which may not be consistent with Macquarie's remuneration principles, including a cash payment.

The Non-Executive Voting Directors of the Board unanimously recommend that shareholders approve Item 6 in the Notice of Meeting. Mr Moore, being the Managing Director and Chief Executive Officer, has a material personal interest in the resolution and, therefore, has abstained from providing a recommendation.

Item 7: Approval of the issue of Macquarie Group Capital Notes

On 22 May 2013, Macquarie lodged a replacement prospectus with the Australian Securities & Investments Commission for the offer of up to 6,000,000 Macquarie Group Capital Notes (MCN) at an issue price of \$100 per MCN. Application for official quotation of MCN on the Australian Securities Exchange (ASX) was made on 14 May 2013 and trading of MCN will commence on a deferred settlement basis on 11 June 2013. MCN are mandatorily convertible in certain circumstances into Macquarie ordinary shares.

MCN are subordinated, non-cumulative, unsecured notes paying a frankable, floating rate cash distribution. They are eligible hybrid capital of Macquarie and will receive transitional treatment under the Australian Prudential Regulation Authority's forthcoming conglomerates framework and replace the existing hybrid capital instrument, the Macquarie Convertible Preference Securities (CPS), issued in 2008. CPS holders were offered the opportunity to reinvest their CPS into MCN.

Reason for seeking approval

The conversion feature of the MCN means that MCN are "convertible securities" of Macquarie for the purposes of the ASX Listing Rules. Under Listing Rule 7.1, Macquarie is not permitted to issue more than 15% of its issued capital in any 12 month period (placement capacity) unless the issue is approved by Macquarie shareholders or an exemption applies to the issue.

For the purposes of calculating the impact on placement capacity under the ASX Listing Rules, ASX has confirmed that the number of ordinary shares for which the MCN would be exchanged is in accordance with their terms as if the MCN were exchanged on their date of issue. Therefore, using an ordinary share price of \$A43.97, the issue of MCN will reduce Macquarie's future placement capacity by approximately 4% of Macquarie's issued capital unless shareholders approve the MCN issue.

Macquarie has determined that it was able to issue all of the MCN within the 15% limit of its placement capacity and accordingly no shareholder approval is required in respect of the issue of the MCN. The effect of approving Item 7 will be to refresh Macquarie's 15% capacity under ASX Listing Rule 7.1 so that its capacity would be the same as if the MCN had not been issued. If shareholders approve Item 7, Macquarie will have greater flexibility to make future placements of Macquarie shares and to raise funds to meet future needs.

A summary of the terms and conditions of the MCN are set out in Appendix B to these Explanatory Notes.

Additional information

The following additional information is provided in connection with the MCN:

• Macquarie issued 6,000,000 MCN on 7 June 2013.
• Under the terms of the MCN, approximately 13.8m Macquarie ordinary shares would be issued if the conversion were to occur on 7 June 2013.
• The issue price of each MCN is \$100.
• MCN were issued to:
• certain institutional investors, participating brokers and their clients under a bookbuild process and broker firm offer
• eligible Macquarie ordinary shareholders, holders of CPS and Macquarie Income Securities under a securityholder offer, and
• eligible holders of CPS who applied to reinvest their CPS in MCN under a reinvestment offer.
• The proceeds of the Offer will be used for general corporate funding and capital management purposes including to facilitate the redemption of the CPS.

A copy of the prospectus containing the full terms of the MCN can be found at www.macquarie.com.au

The Board unanimously recommend that shareholders approve Item 7 in the Notice of Meeting.

Appendix A – Performance Hurdles of PSUs

PSUs issued under the MEREP become exercisable upon the achievement of two performance hurdles, each applying individually to 50 per cent of the total number of each tranche of PSUs awarded. The following table provides a summary of the hurdles:

	EPS CAGR Hurdle	ROE Hurdle
Application to PSU awards	50 per cent	50 per cent
Performance measure	Compound annual growth rate (CAGR) in earnings per share (EPS) over the vesting period (three to four years)	Relative average annual return on equity over the vesting period (three to four years) compared to a reference group of global peers(1)
Hurdle	Sliding scale applies: 50 per cent becoming exercisable at EPS – CAGR of 7.5 per cent 100 per cent at EPS CAGR of 12 per cent – For example, if EPS CAGR was 9.75 per cent, 75 per cent of the relevant awards would become exercisable.	Sliding scale applies: 50 per cent becoming exercisable above the 50th – percentile 100 per cent at the 75th percentile – For example, if ROE achievement was at the 60th percentile, 70 per cent of the relevant awards would become exercisable.
Changes	Hurdles are periodically examined by the BRC as part of their ongoing review of the remuneration – approach, to ensure they continue to align the interests of staff and shareholders and provide a challenging but meaningful incentive to Executive Committee members. The BRC considers historical and forecast
	market data, the views of corporate governance bodies, shareholders and regulators as well as peer market practice.
	For allocations from 2013, the EPS CAGR – hurdle range has been amended from 9%–13% to 7.5%–12%. This change was made to reflect the change in market conditions since the hurdles were first set in 2009. The continued use of an absolute EPS hurdle – requires Macquarie to deliver increased business results before awards are exercisable, lessening the chance that awards could be exercised when results are negative as with the use of a relative measure.	The ROE Reference Group(1) has been amended for – allocations from 2013 onwards to comprise the same group of peers used for ROE performance analysis in section 3 of the Remuneration Report. Use of an international peer group recognises the – extent of Macquarie's internationalisation and its identified peer group. At 31 March 2013, over half of Macquarie's income and over half of Macquarie's staff were offshore.
Rationale for hurdles	– profit share pool. – executives have limited control. – – promote excessive risk taking. – –	ROE and EPS are considered appropriate measures of performance as they drive longer-term shareholder returns and are broadly similar to the performance measures Macquarie uses for determining the annual ROE and EPS are appropriate to the Executive Committee because they can affect outcomes on both measures. In contrast, TSR is influenced by many external factors, including market sentiment, over which ROE and EPS can be substantiated using information that is disclosed in audited financial statements. The use of a sliding scale diversifies the risk of not achieving the hurdles, provides rewards proportionate to performance for shareholders and is preferable to an all-or-nothing test which some have argued could The approach is consistent with that advocated by APRA in not using TSR as a measure. Being three and four year average measures from 2012 and aligned with the vesting period, Macquarie's performance hurdles reward sustained strong performance and are relatively well-insulated from short-term fluctuations. The time frame used for PSUs should also be considered in light of the three to seven year deferral of profit share for members of the Executive Committee.

(1) The reference group comprises Macquarie's major international investment banking peers with whom Macquarie competes and frequently compares its performance. The reference group for awards made in 2013 is Bank of America, Barclays, Credit Suisse, Deutsche Bank, Goldman Sachs, Jefferies, JP Morgan Chase, Lazard, Morgan Stanley and UBS. The reference group for awards made prior to 2013 included Bank of America, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Morgan Stanley and UBS as well as significant Australian commercial banks within the ASX 100 (ANZ Group, Commonwealth Bank, National Australia Bank, Westpac, Suncorp).

Appendix A – Performance Hurdles of PSUs continued

Testing of hurdles

Under both performance hurdles, the objective is examined once only, effectively at the calendar quarter end immediately before vesting. If the condition is not met when examined, the PSUs due to vest will not be exercisable upon vesting.

The PSUs which vested in July 2012 comprised the second tranche of those granted in 2009 and the first tranche of those granted in 2010. They did not become exercisable due to the performance hurdles not being met. PSUs that did not meet performance hurdles expired.

	EPS CAGR Hurdle			ROE Hurdle
PSU Tranche	Macquarie result (for vesting period)	Hurdle	Outcome	Macquarie result (for vesting period)	Hurdle	Outcome
2009 Tranche 2	(12.0%)	At 9%	100% not exercisable	8.4%	> 50th percentile rank	100% not exercisable
2010 Tranche 1	(19.0%)	At 9%	100% not exercisable	7.3%	> 50th percentile rank	100% not exercisable

Summary of the terms of the Macquarie Capital Notes (MCN)

The following is a summary only of the terms and conditions of the MCN (MCN Terms). The MCN Terms are set out in full in Appendix A of the replacement prospectus dated 22 May 2013. A copy of the Prospectus can be found at www.macquarie.com.au or www.asx.com.au. Defined terms used in this Summary have the meaning given to them in the MCN Terms.

About MCN

MCN are fully-paid, subordinated, non-cumulative, unsecured and mandatorily convertible (subject to certain conditions) securities. The Issue Price is \$100 per MCN. MCN constitute regulatory capital of Macquarie Group (MGL) which satisfies the Australian Prudential Regulation Authority's regulatory capital requirements.

Distributions

MCN are scheduled to pay floating rate cash distributions twice a year in arrears until all MCN are Exchanged, Redeemed or Written-Off. The Distribution Rate is recalculated twice a year based on the Reference Rate plus a margin of 4%, adjusted for franking.

Distributions will be franked at the same rate as MGL ordinary shares. The level of franking may vary over time and Distributions may be partially, fully or not franked.

Distributions on MCN are discretionary, which means MGL can determine not to pay them and can also only be paid if certain Payment Conditions are met (including that MGL is able to pay Distributions without breaching APRA requirements or becoming insolvent). Distributions are non-cumulative, which means that if a Distribution has not been paid on a Distribution Payment Date then MGL has no obligation to pay the Distribution at any later date.

Unless a Distribution is paid in full within 10 Business Days of a Distribution Payment Date, in most circumstances MGL is restricted from paying any dividend or returning capital on Ordinary Shares until the next Distribution Payment Date.

Exchange

MCN may be Exchanged for Ordinary Shares in the following circumstances:

• Mandatory Exchange: All MCN are scheduled to be Exchanged on 7 June 2021, unless the Exchange Conditions are not met (in which case, Exchange will be deferred until the first Distribution Payment Date when the Exchange Conditions are met). The Exchange Conditions ensure that MCN Holders will not receive less than \$101 worth of Ordinary Shares per MCN on Exchange (based on the VWAP during the 20 ASX Trading Days before the Mandatory Exchange Date).
• Exchange at MGL's option: MGL may also choose to Exchange all or some MCN on 7 June 2018, 7 December 2018 or 7 June 2019, or if there has been a Tax Event or Regulatory Event, provided certain conditions are met.
• Acquisition Event: MGL will be required to Exchange all MCN for Ordinary Shares if an Acquisition Event (broadly, a change of control of MGL by takeover bid, scheme of arrangement or otherwise) occurs, provided certain conditions are met.
• Non-Viability Event: MGL will be required to Exchange all or some MCN for Ordinary Shares (or, if MGL is prevented from issuing Ordinary Shares, Write-Off all or some MCN) if a Non-Viability Event occurs. Broadly, a Non-Viability Event occurs if APRA provides MGL a written determination that the conversion into Ordinary Shares or write-off of certain securities (including MCN) is necessary as without it APRA considers that MGL would become non-viable or a public sector injection of capital into MGL is to occur, as without such support MGL would become non-viable. This Exchange is not subject to any conditions.

The maximum number of Ordinary Shares that MCN can be Exchanged for on a Mandatory Exchange is 4.7148 per MCN, or on Exchange for any other reason is 11.7869 per MCN.

Appendix B – Additional Information on Item 7 continued

Ranking in a winding up

In a Winding Up of MGL, MCN will rank ahead of Ordinary Shares, equally with Equal Ranking Obligations but behind all Senior Creditors of MGL.

However, any return on MCN in a Winding Up of MGL may be adversely affected (or reduced to zero) if APRA requires all or some MCN to be Exchanged or Written-Off on account of a Non-Viability Event.

No Voting rights in MGL

Holders of MCN do not have any voting rights in MGL.

Investor Information

Enquiries

Investors who wish to enquire about any matter relating to their Macquarie Group Limited shareholding are invited to contact the share registry:

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GPO Box 2975 Melbourne VIC 8060 Australia Telephone: +61 3 9415 4137 1300 554 096 Freecall: Hreedall: 1300 004 096
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All other enquiries relating to a Macquarie Group Limited share investment can be directed to:

Investor Relations

Macquarie Group Limited Level 7, No.1 Martin Place Sydney NSW 2000 Australia Telephone: +61 2 8232 5006 +61 2 8232 6346 Facsimile: Email: macquarie.shareholders@macquarie.com Website: www.macquarie.com.au/investorrelations

Website

Macquarie's 2013 Annual Review and 2013 Annual Financial Report, which together comprise the 2013 Annual Report, are available on Macquarie's website at: